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Promise and perils

While President Cyril Ramaphosa was having a breakfast meeting with his Economic Cluster Ministers at Genadendal last week, to deliberate on ways to deliver on the $100-billion-investment goal, the International Monetary Fund (IMF) released a report highlighting just how important investment is for South Africa’s and Africa’s growth outlook.

The fund’s ‘Regional Economic Outlook for Sub-Saharan Africa’ highlights that the recent weakening of growth in the region is partly the result of its poor performance in attracting domestic and foreign investors.

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Private investment across countries in sub-Saharan Africa is, on average, 2% of gross domestic product (GDP) lower than for other developing countries. While the average for the region was 15% of GDP for the period 2010 to 2016, it was 22% for developing countries in Asia, 18% for those in Europe, 17% for those in Latin America and 16% for those in the Middle East and North Africa.

Owing partly to elevated commodity prices, the slowdown in investment in sub-Saharan Africa was less pronounced between 2010 and 2014 than was the case in other regions. However, the IMF reports that, since 2015, investment rates have deteriorated more than in other developing economies, contracting by an average of 4% a year in 2015 and 2016.

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The reason for the slump differs from country to country. However, in South Africa’s case, it is attributed primarily to policy and political uncertainty.

This frail investment climate has weighed on GDP growth, with South Africa’s growth remaining below trend, despite a recovery to 1.3% last year and an expectation of 1.5% growth in 2018.

Firstly, there has to be macroeconomic stability and certainty. Here South Africa has some serious challenges, not least because of the threat posed by heavily indebted State-owned companies, as well as new demands on the public purse, most notably in the area of higher education. The good news is that Ramaphosa has assembled credible teams to tackle these problems. The bad news is that the problems are so huge that something will have to give, which could result in some serious pain in the months ahead.

Secondly, microeconomic certainty is needed in all areas, from tourism and mining to broadband infrastructure and land. Here, it’s a mixed bag. There is genuine potential for ‘quick wins’ in tourism (read ‘visa rationality’), broadband (read ‘spectrum allocation’) and mining (read ‘Mining Charter settlement’). However, progress in these areas can be easily overshadowed unless there is equally swift progress in building consensus on the issue of land redistribution, restitution and security of tenure.

If handled well, the land reform issue will not hobble the $100-billion investment aspiration. However, should the process fail to live up to Ramaphosa’s promise that the new framework will be the outcome of genuine consensus building that increases investor certainty and domestic sustainability, the investment outlook across all sectors will remain weak.